(Note: Louis H. Schimmel Jr., a highly regarded city
finance expert, is the
new director of municipal finance at the Mackinac Center. In this capacity,
Schimmel will provide financial analysis to economically distressed communities.
Schimmel recently reviewed the city of Sylvan Lake’s finances, and a slightly
edited version of his report to the Sylvan Lake City Council is below.)

Review by Louis H. Schimmel

Director of Municipal Finance

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Mackinac Center for Public Policy

May 9, 2006

At the request of the city of Sylvan Lake City Council, I
have prepared the following general review of the city’s financial and
operating procedures. Included are comments and recommendations that I consider
would be improvements to the overall operation of the city.

Fire and EMS

The city has the ideal arrangement for fire suppression, by
way of its firefighting contract with West Bloomfield Township. The cost for a
small city to provide its own fire department is prohibitive. However, as the
West Bloomfield Township’s costs go up for its fire department, so too will the
costs go up for the city of Sylvan Lake. It is important that the city continues to communicate and work closely with West Bloomfield Township to maintain minimal cost increases.

Police Department

The labor contract between the city and the police
officers’ local union is acceptable. However, I recommend that at the time of
renewing the next contract the city consider the following items for
negotiation:

Reduce number of funeral days from five to three, allowing for the
continued use of sick days if employee requests additional days.

Reduce number of paid holidays from 14 to 11. Eliminate holidays
such as Election Day, birthdays and the day after Thanksgiving.

Eliminate longevity pay.

Reduce maximum accumulation of sick days from 120 to 80.

Increase number of years worked in city to 15 in order to get
retiree health care.

Eliminate personal leave days and allow use of sick days instead.

Existing employee health insurance: require 5 percent increasing
to 25 percent (over the next five years) of the additional premium for
two-person or family coverage to be paid by employee.

New employee health insurance: single person coverage provided by
city, additional premium for two-person or family coverage to be paid by
employee.

Retiree health insurance: require 50 percent of the additional
premium for two-person or family coverage to be paid by retired employee. Single person coverage only provided for employees hired after July 1, 2006.

Increase drug co-pay to a $15-$30 plan or similar.

Non-Union Employees

The items listed above for negotiation with the police
department should also apply to all non-union employees.

Various City Recreation Fees

The city charges recreational user fees for the following:

Boat Dock Fee

Park Registration Fee

Boat Ramp Key

Boat Registration Fee

Beach Tag

Sylvan/Otter Lake Control

TV Sports Tag Key

There are two schools of thought on user fees. There are
those who take the position that, "if I don’t use it, why should I have to pay
for it?" And then there are those who believe that all residents should pay for
city services even if not used by all residents. The library millage (tax rate)
levied citywide is a good example of the latter.

In looking at the above list of recreational fees, I would
put the city parks in the same category as the library. I believe that city
parks benefit everyone, even if not physically used by a homeowner. Few would
argue that their home value is not enhanced by the presence of city parks.

Therefore, I am recommending that the City Council consider
eliminating the following user fees:

User Fee

2005-2006 Estimated Income

Park Registration

$ 11,250.00

Beach Tag

3,800.00

TV/ Tag Key

500.00

Boat Registration

700.00

Total

$ 16,250.00

A voted city tax rate increase of .18 mill would raise
enough money to replace the loss of $16,250 resulting from the elimination of
the above fees. The elimination of the above fees would also do away with an
excessive amount of bookkeeping and other related expenses. It should also be
pointed out that the park registration fee, which is assessed for the purpose of
paying state taxes to maintain a private city park system, is producing more
income than the annual state tax. This could become a legal problem at some
point.

General Fund Balance

The city has a higher than normal general fund balance.
Financially the city is in a good position to handle minor annual operating
deficits or any unexpected expenses that may occur. Also, a portion of the
general fund balance could be used for one-time capital improvement projects.

City Owned Property

The city does not own any excess property, buildings,
vehicles or other assets that could or should be sold.

DPW

In most cities this is an area where great savings can be
realized through privatization of services. Because the city already uses
private contractors for trash pickup, water and sewer repairs, storm water
management, street repairs, park maintenance and other DPW services, the city is
already receiving the benefits of using outside contractors. Additionally, the
two DPW employees on the city’s payroll at present cost no more than what an
outside contractor would charge.

Community Center

The city-owned community center is currently closed due to
black mold. It is my understanding that this has been a controversial issue for
city residents. I would recommend that the mayor and council appoint and work
with a committee of interested residents to determine the pulse of city
residents on this issue. The committee working with the city manager should
determine costs of eliminating, renovating or constructing a new facility. Cost
estimates should be obtained in order to help citizens, committee members, the
city manager and the council in making the right decision on this issue.

Once the decision is made on what course of action to take
on the community center, it may be necessary to fund the project by way of a
bond issue. Such a bond issue would require a vote of the people. This is why it
is important that the committee and the council do their best to keep the
citizens informed, and try to determine what the majority of residents would
like the outcome to be for the community center. The bond proposal should be for
a specific dollar amount with a tax levy sufficient to retire the bonds. The tax
levy would end once the bonds are retired.

Library

The arrangement with West Bloomfield Township for library
services is cost effective and ideal for a small city.

Building Department and Ordinance Enforcement

Building departments are time consuming operations. The
city appears to be doing an excellent job of using both full-time and part-time
personnel to perform the necessary functions of the department. Ordinance
enforcement also is being performed at a minimal cost.

Assessing and Board of Review

The city contracts with Oakland County Equalization for
assessing, which is cost effective, and the best way for small cities to perform
assessing services. The city’s local Board of Review is also cost effective and
properly managed.

Competing with Private Enterprise and TIF Districts

The city of Sylvan Lake has not made the mistake so many
cities make of trying to provide services that compete with private enterprise.
In other words, if a golf course or an ice rink makes sense, private enterprise
will build it. Too often city governments have built such facilities that don’t
make sense and lost large sums of taxpayers’ dollars. Needless to say, the city
has little space for such ventures.

The city of Sylvan Lake does not have any Tax Increment
Finance Districts. Many cities believe that creating Tax Increment Finance
Districts for various purposes is a good idea. The first problem with creating
such districts is that another governing board is created within the city, which
more often than not ends up having a different agenda than that of the city
council. A second problem is that tax revenues that would normally go into the
city’s general fund are now siphoned off and sent to the TIF District. Many
cities wish they had never created TIF Districts because they feel the general
fund needs of the city are far greater than what the TIF Districts are doing
with the tax revenues.

City Management

It is my opinion that the city is financially strong, well
managed and operating efficiently. I would suggest that it appears that the city
manager, by necessity, is spending too much time on routine matters that could
be better handled by clerical personnel. Adding one position, or even 1/2
position, of clerical help would allow the city manager to spend his time on the
more important issues facing the city.